Sustainable growth rate (SGR)
Principles of Finance glossary · Cost of Capital & Capital Structure
Definition
The maximum growth rate achievable without issuing new equity, holding the debt-to-equity ratio constant: SGR = ROE · b, where b is the retention ratio (1 minus payout ratio).
Sustainable growth rate (SGR) in plain English
This answers one question: how fast can a company grow using only the profit it keeps, without asking investors for more money or leaning more heavily on debt? A company earns profit, and ROE (return on equity) tells you how much profit it makes per dollar the owners have in it. But it doesn't keep all that profit — some gets paid out to shareholders; the fraction it KEEPS to reinvest is the retention ratio b. Multiply them, SGR = ROE · b, and you get the top speed it can grow while staying financially balanced — like how fast a garden can spread if you can only replant the seeds you saved, not buy new ones.
Also called: SGR
Learn these first
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide